Question

Suppose that the value of an investment in the stock market has increased at an average compound rate of about 5% since 1900. It is now 2016. a.) If someone invested $1000 in 1900, how much would that investment be worth today? (Do not round intermediate calculations. Round your answer to two decimal places.) b.) If an investment from 1900 has grown to $1 million, how much was invested in 1900? (Do not round intermediate calculations. Round your answer to two decimal places.)

Answer 1

1. $287,050.75

2. $3,483.70

Step-by-step explanation:

1. Calculation for how much would that investment be worth today

Using this formula

A=P(1+r/100)^n

where,

A represent future value

P represent present value

r represent rate of interest

n represent time period

Note 2016-1900 will give us 116 years

Let plug in the formula

A=$1,000(1.05)^116

A=$1,000*287.05075

A=$287,050.75

Therefore how much that the investment would be worth today will be $287,050.75

2. Calculation for how much was invested in 1900

1,000,000=P(1.05)^116

P=1,000,000/1.05^116

P=$3,483.70

Therefore how much was invested in 1900 will be $3,483.70